Bitcoin recovered from its dip yesterday and is still in a bull pennant. Let the games begin!
Here's how I see things playing out:
1. There's been 7 years of Bitcoin "rights of passage" phase which has progressed successfully. Never been hacked, not gone to zero etc etc.
2. There's been about 3-4 years of Bitcoin competitors of every shape or size, none of which have made a significant dent in its marketcap but a small number (about 1%) of which manage to establish themselves as significant long term hedges
3. The market is diversifying into 3 sectors:
(3a) monetary assets
(3b) technology assets
(3c) venture capital funds
I'd place the "bearer token" cryptocurrencies like bitcoin and its clones in the monetary asset category and programmable smart-contract blockchains in the "technology asset" category, so I don't really see them as being in direct competition. I started messing about with Solidity the other day which is pretty damn cool, but as an investment it's more like discovering lego than gold.
Of the monetary assets, there are two clear zones of divergeance:
- off chain, non-native evolution
- on chain, native evolution
Clearly, whatever the relative merits of the 2 approaches, one is an obvious hedge for the other. Not only that - there are technical advantages of one over the other in all sorts of sectors which Dash is already benefiting from.
Unless, you take the view that cryptocurrency is a natural monopoly (like most of the people in BTC Core do) then Dash is perfectly placed to mop up much of the complimentary space to Bitcoin. So lets consider that question of "natural monopoly".
4. Will "network effect" lead to a dominant cryptocurrency ?
This is where my priorities probably diverge from many in the community regarding what "adoption" means for cryptographic assets. Many people don't see any difference between currencies and the underlying "monetary assets" that back them (if any). They see adoption as being the use of crypto in exchange for goods and services. I don't see it this way and I think people taking that view should ask themselves why goods and services prices are never denominated in gold or any other "deflationary asset".
The fact is, in a developed economy you need both deflationary and inflationary money because you need one to keep prices stable against varying liquidity requirements and another as a long term store of value. Usually the former is variable supply and the latter is fixed supply. So called "bearer token" assets like Dash are fixed supply relatively speaking. That means they're not so great for commerce or for denominating prices but they can be deployed in a core monetary role - as metals were in the last century.
Given that background, it follows that although network effect is a powerful element in boosting an asset's profile, it won't lead to one cryptocurrency dominating because at the "core monetary level" diversification is essential. Why are hedge funds called "hedge funds" ? Because they hold assets that have complimentary monetary properties. If one asset has a particularly pronounced characteristic, they buy another asset that goes in the opposite direction to hedge it.
Thats why Dash is in a very strong position now. While it inherits much of bitcoin's pedigree, its strategic priorities in the areas of scaling, privacy and governance perfectly compliment bitcoin's since these are all being addressed natively using the network's own nodes as opposed to non-natively using a third technological entity.
It isn't a question of whether one is more technologically advanced than the other, it's a question of meeting the design objectives successfully so that the relevant market space can be well supported. In the blocksize debate, there was no "winner", contrary to what a lot of people are saying. It became clear to me that bitcoin could not fulfil its role to everyone's satisfaction no matter what direction it went in. That has always happened - markets diversify - and it's what will happen increasingly from now on IMO.
Nice. Worthy of a new Tek Tok!
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